TMI Blog2020 (2) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... s for ay: 2010-11 to 2012-13 were interfered by Revenue by invoking provisions of Section 147 or Section 263 or any other provisions of the 1961 Act. It is settled proposition now that claim for deduction towards provisions for warranties made on the basis of past experience based on statistical data by adopting scientific method to fulfill contractual obligation arising out of concluded contracts of sale/services is an ascertained liability . Reference is drawn to decision of Hon ble Supreme Court in the case of Rotork Controls India Private Limited v. CIT [ 2009 (5) TMI 16 - SUPREME COURT] . Under these circumstances based on totality of facts and circumstances of the instant case before us, we are inclined to quash the revisionary order dated 30.03.2019 passed by learned PCIT u/s.263 of the Act and hold that the assessment order dated 27.02.2017 passed by AO was not erroneous in so far as prejudicial to the interest of Revenue. We order accordingly. - ITA No.1692/Chny/2019 - - - Dated:- 10-2-2020 - Shri Ramit Kochar, Accountant Member And Shri Duvvuru R.L. Reddy, Judicial Member For the Appellant : Mr. Vikram Vijayaraghavan, Adv. For the Respondent : Mr. A.Sund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,352 7. The Learned PCIT has failed to appreciate the fact that the provision for warranty has been made on a scientific basis being the historical experience of the warranty expenses incurred by the Appellant. 8. The learned AO has failed to appreciate the ruling of the Hon'ble Supreme Court of India in the case of Rotork Controls India P Ltd v CIT (314 ITR 62) and Jurisdictional High Court decision in the case of the Commissioner of Income-tax Vs Luk India (P.) Ltd [347 ITR 674 (Mad)] which has allowed deduction of provision for warranty created based on historical experiences. The Appellant craves leave to add, supplement, amend, delete or otherwise modify any of the grounds stated hereinabove at the time of hearing. 3. This appeal filed by the assessee has challenged revisionary order passed by learned PCIT u/s.263 of the Act dated 30.03.2019 holding that assessment order dated 27.02.2017 passed by AO u/s.143(3) read with Section 92CA(4) read with Section 144C(3) of the 1961 Act to be erroneous so far as prejudicial to the interest of Revenue by invoking provisions of Section 263 of the 1961 Act. Brief facts of the case are that the assessee is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Assessing Officer passed u/s 143(3) of the Act for AY 2013-14 on 27.02.2017 , is erroneous in so far as it is prejudicial to the interests of the Revenue. It is , therefore, proposed to exercise revisionary powers conferred u/s 263 of the Act . 3.2 The assessee on its part challenged the said show cause notice issued by learned PCIT on several grounds and also relied upon judicial precedents as detailed in the revisionary order dated 30.03.2019 passed by learned PCIT u/s.263 of the Act, wherein, learned PCIT invoked provisions of Sec.263 of the Act and held that assessment order passed by AO to be erroneous in so far as prejudicial to the interest of the Revenue , by holding as under: 3. Decision - I have considered the facts and circumstances of the case and submissions made by the assessee in this regard and find that the claim of the assessee is not acceptable, according to the case law relied by the assessee in the case of Rotork Controls India P Ltd , the following 3 conditions have to be satisfied to recognize a provision and allow the same as expenditure. The provision is a liability which can be measured only by using substantial degree of estimation. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and diligent application of mind and hence in my considered opinion the assessment order so passed is erroneous, to the extent it is prejudicial to the interests of the Revenue. Accordingly, the assessment order is hereby set aside u/s.263 of the Act, with the direction to the assessing officer to examine the aspects discussed above and pass a fresh order after granting opportunity to the assessee. The assessee can furnish documents which were not available at the time of assessment, to the Assessing Officer for fresh examination. It is ordered accordingly. 4. Aggrieved by revisionary order dated 30.03.2019 passed by learned PCIT u/s 263 of the 1961 Act, the assessee filed first appeal with tribunal and elaborate contentions are made by learned counsel for the assessee before the tribunal. The assessee has also filed written submissions before tribunal which are placed in file. The assessee has also filed paper book before the tribunal, which are placed in filed. The learned counsel for the assessee submitted that assessment order was passed by the AO after making enquiries about provision for warranty made by the assessee in its books of accounts and the said assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at proper enquiries were made by AO during assessment proceedings as well replies were filed during assessment proceedings , and hence assessment order passed by AO cannot be termed as erroneous in so far as prejudicial to the interest of Revenue. Reliance is placed by learned counsel for the assessee on the decision of the Hon ble Bombay High Court in the case of CIT v. Gabriel India Ltd., reported in [1993] 71 Taxman 585 (Bombay) . The learned counsel for the assessee has also relied upon following decisions in the written submissions filed before the tribunal: a) Hon ble Delhi High Court decision in the case of CIT v. Vikas Polymers reported in (2010) 194 Taxman 57(Del. HC) b) Hon ble Allahabad High Court decision in the case of Meerut Roller Flour Mills Private Limited v. CIT reported in (2019) 110 taxmann.com 170(All. HC) c) ITAT, Mumbai decision in the case of Narayan Tatu Rane v. ITO reported in (2016) 70 taxmann.com 227(Mum-trib) d) Hon ble Delhi High Court in the case of CIT v. Sunbeam Auto Limited reported in (2010) 189 Taxman 436(Del HC) It is the contentions of learned counsel for the assessee before the Bench that AO made enquiries and verifications whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y powers u/s 263 of the 1961 Act. 5. We have considered rival contentions and carefully perused the material on record including cited case law. We have observed that assessee is in the business of manufacturing of auto parts. The assessee filed its return of income for impugned ay: 2013-14 on 29.11.2013 declaring total income of ₹ 74.30 Crs. The case of the assessee was selected by Revenue for framing scrutiny assessment , and assessment order dated 27.02.2017 was passed by AO u/s.143(3) r.w.s.92CA(4) r.w.s.144C(3) of the 1961 Act assessing income of the assessee at ₹ 76.04 crores as against returned income of ₹ 74.30 crores , after making additions to the income of the assessee to the tune of ₹ 1.74 crores to the returned income in the hands of the assessee while framing scrutiny assessment by the AO. However, the AO did not made any additions to the income of the assessee towards provision for warranty to the tune of ₹ 1,40,45,352/- made by assessee in its audited financial statements which was claimed by assessee as deduction while computing income chargeable to tax while filing its return of income. We have observed that during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the sale of products manufactured /services rendered by the assessee. The assessee is making claim for provisions for warranties in preceding years also , as is emerging from records before the Bench. On perusal of the audited financial statement for financial year 2012-13 relevant to impugned ay: 2013-14, we have observed that assessee has Gross Revenue from operations to the tune of ₹ 782.04 Crs.( ₹ 675.79 crores for financial year 2011-12) . We have observed that during the year under consideration viz. ay: 2013-14, the assessee has made provision for warranties to the tune of ₹ 1.40 Crs. which is 0.18% of the Gross Revenues from operations reported by assessee. The assessee has declared income of ₹ 74.30 crores chargeable to tax in the return of income filed for ay: 2013-14. The total actual claims against warranties received by assessee during the year under consideration viz. ay: 2013-14 were to the tune of ₹ 99.37 lacs. In the immediately preceding financial year 2011-12, the provision for warranties made by assessee were to the tune of ₹ 2.40 Crs. as against Gross Revenue from operations to the tune of ₹ 675.79 crores reported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s passed by the AO for ay: 2011-12 and 2012-13 were interfered by Revenue either u/s 147 or 263 of the 1961 Act or any other provisions of the 1961 Act so far as claim for provisions for warranties so allowed by the AO for ay: 2011-12 and 2012-13 is concerned. It is also not shown by Revenue before the Bench that the claim for provision for warranties made by the assessee was unconscionably higher for relevant previous year 2012-13 relevant to impugned ay: 2013-14 vis- -vis earlier years , rather the assessee has claimed provision for warranties to the tune of 0.18% of Gross Turnover for ay: 2013-14 as against 0.36% of Gross Turnover for ay: 2012-13 and 0.15% of Gross Turnover for ay: 2011-12, and as could be seen the AO allowed claim for provision for warranties for ay: 2011-12 and 2012-13 in scrutiny assessment and no additions were made to the income of the assessee by AO while framing scrutiny assessment. It is also not brought on record by learned CIT-DR that assessment orders for ay: 2011-12 and 2012-13 were interfered by Revenue by invoking provisions of Section 147 or Section 263 or any other provisions of the 1961 Act. It is also observed that similar position prevailed ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture on account of commitments made by tax-payers to its customers while executing sales/services contracts already made before the end of year. It is also well settled that an estimates would always entail some guess work but the said estimate has to be an honest and fair guess work . Reference is drawn to decision of Hon ble Supreme Court in the case of Kachwala Gems v. JCIT reported in (2007) 288 ITR 10(SC) , although it was rendered in the context of best judgment assessment. Merely because, the provision for warranties made during the year under consideration is in excess of claims received during the year under consideration, could not be a reason for disallowing said claim unless it is shown that provision for warranties made during the year is unconscionably high which was made with an intent to artificially reduce tax-liability with an intent to defraud revenue. Incidentally , in the preceding year viz. ay: 2012-13 , the assessee received actual claims for warranties to the tune of ₹ 1.87 crores while in the year under consideration viz. ay: 2013-13, it made provision for warranties to the tune of ₹ 1.40 crores in its books of accounts . Thus, in the preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated during the FY 2012-13 1,40,45,352 Table B: Workings for computing percentage of warranty expense in proportion to the turnover. Year Turnover (₹) Warranty Claims (₹) Claim % on Sales considered for warranty purposes 2007-08 2,98,75,94,875 - 0.0% 2008-09 4,24,19,80,814 - 0.0% 2009-10 4,84,88,60,032 19,15,893 0.0% 2010-11 5,03,95,36,000 85,28,070 0.2% 2011-12 6,11,23,89,566 1,86,54,652 0.3% Total 23,23,03,61,287 2,90,98,615 0.1% Copy of financial statement for the FY referred above is enclosed. The issue of claim of provisions for warranties was a rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the AO , it could not be said that the assessee is making an attempt to claim higher provisions towards warranties in the year under consideration to reduce its tax liability or to defraud Revenue or the claim so made was unconscionably higher. Under these circumstances, we are of the considered view, the AO has formed an conscious opinion while allowing deduction towards claim of provision for warranties while framing scrutiny assessment for impugned ay and it could not be said that the AO formed an opinion which could be termed as perverse to the extent that the assessment order passed by the AO could be termed as erroneous in so far as prejudicial to the interest of the Revenue warranting interference u/s 263 of the 1961 Act. The powers u/s 263 are extra-ordinary revisionary powers vested with learned PCIT who is required to pass an revisionary order after examining the record as stipulated in sub-section 1 to Section 263 of the 1961 Act read with Explanation 1 clause (b), which explanation provide that the record shall include and shall be deemed always to have included all records relating to any proceedings under the 1961 Act available at the time of examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finally accepted the claim for deduction towards provisions made towards warranties in the preceding years under scrutiny assessments for ay: 2010-11 to 2012-13 and provision for warranties made during the year under consideration is not unconscionably higher than that of preceding years warranting interference u/s 263 of the 1961 Act rather it has fallen to 0.18% of Gross Turnover during the year under consideration from 0.36% of Gross Turnover during immediately preceding year. It is now well settled by catena of judgments that in tax proceedings , principles of res-judicata is not applicable but principles of consistency has to be maintained to instill certainty in tax matters in the minds of tax-payer so that they can plan their affairs , unless perversity is shown in the action of tax-payer in claiming deduction while computing income chargeable to tax or it is shown that an attempt is made by tax-payer to defraud revenue or an unconscionably high claim of deduction is made by the tax-payer which breaches all cannon of equity, justice and law. We donot find any such attempt made by assessee in the instant case to defraud Revenue while making claim for provisions for warrantie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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